Rising from the rubble, Haiti faces tough economic choices – Part 1

Nearly two and three-quarters years after the January 12, 2010 earthquake, Haiti has haltingly moved beyond disaster recovery. But the phase of rebuilding is progressing slowly. As of August, 369,000 Haitians, out of an estimated 3 million in the Port-au-Prince metropolitan area, remain stuck in camps for displaced people. Although this number is down by over three-quarters from 1,500,000 homeless in July 2010, it still represents a huge number of people living in intolerable conditions.

The still ubiquitous tents clinging to steep hillsides, though, are only the most visible reminders of continuing suffering. Many who have left the camps have moved back
into condemned houses, crowded in with relatives, or remain dependent on United Nations rent subsidies. Although 78 percent of the displaced were renters, much of the reconstruction aid has focused on the 22 percent who were homeowners.

Relocation of some displaced people has meant moving them to places such as Corail Cesselesse, a moonscape of graded gravel north of Port-au-Prince covered with interim housing for quake victims. While this was an improvement over the worst areas in the tent camps, these initial experiences have made clear that it’s not enough to simply build new dwellings: if families are to become self-sufficient, they must be settled into new communities with stores, education, public services, transportation and above all jobs. These essentials, though, are still in short supply there, just as they have long been in the existing bidonvilles (shantytowns) that for decades have housed millions of low-income urban Haitians.

Even for those residents of the earthquake area who were not displaced, many of their jobs were crushed under the rubble and have yet to resurface. Recovery cannot take wing without new employment that provides incomes sufficient to pay for the basic costs of life, which in turn can generate enough demand to create more jobs and revive the local economy.

Reconstruction and development

At this point, an increasing part of international aid for Haiti is transitioning from reconstruction into development aid, even though nearly half of the $5.33 billion pledged in 2010 has yet to be disbursed. In fact, effective forms of economic development are necessary to ensure that the remaining reconstruction actually occurs and that the country draws long-term benefits from the temporary inrush of aid.

The advances of reconstruction beg the question of where enough new jobs are going to come from to resurrect self-sustaining communities. The historical record is not encouraging: since decades before the disaster, the “informal sector” and subsistence farming have been where most of the three-quarters of Haitians below the poverty line have fought their daily battles to survive.

So yet again, Haiti has pushed its rock up nearly to the crest of the same old hill. Once more it is facing the familiar maze of chicken-and-egg issues that we label with the anodyne term “development”.

Why have Haiti’s poverty and dysfunction been so persistent? It wasn’t always that way. But for most of the past half-century, a succession of historical tsunamis followed by a natural earthquake – the deadliest in Western Hemisphere history – have smashed its hopes of becoming a “developing” country in any meaningful sense.

At mid-Twentieth Century, Haiti was one of the more prosperous Caribbean nations and a popular tourist destination. Its attractive capital had a population around one-tenth its current size. Then came Papa Doc. Through the Duvalier
family dictatorship, from 1957 to 1986, followed by years of repression and bloody coups by uniformed gangbangers – most with foreign tolerance or support – the economy was ground relentlessly into the dirt. Institutions and infrastructure were repeatedly trashed, while corruption and violence forced many skilled workers and professionals to emigrate. The reigning philosophy of governance was crystallized by one military regime that, before it was forced out of power, tore the plumbing out of the main government buildings.

The few elected governments during this period were largely thwarted by powerful internal and external enemies of democracy and independence. Their efforts at restarting economic growth were like trying to solve a Rubik’s cube that keeps twisting back into its previous position. Long before the earthquake, Haiti had been reduced to the poorest country in the hemisphere. Its signature product was the economic immiseration of the great majority of its population. Its most successful exports were its emigrants. Rather than developing, Haiti was unraveling.

Through this period, Haiti did serve as a link in some international production chains, hosting bauxite mining and light manufacturing plants turning out garments and baseballs. The Washington Consensus-dictated model of low-wage assembly for export became the dominant economic model. Did it help the country develop? There’s not much evidence that it was a successful path to reducing poverty or a catalyst for growth of the broader economy. Instead, it seems to have left most Haitians with little human, financial or physical capital to build on.

Today the global economy is far more integrated and powerful. For a country desperate for jobs and income, slaking those thirsts by drinking directly from that fire hose is undeniably attractive. But many have gotten soaked trying.

Government and business

“Haiti is open for business” has been the cri de coeur of President Michel Martelly’s administration. The president of the Inter-American Development Bank, Luis Alberto Moreno, has echoed the refrain approvingly. That invitation could be interpreted in many ways. In Haiti’s history, openness to foreign businesses has sometimes led to military invasions and hostile financial takeovers of the central bank and customs houses. On the other hand, some ways that businesses behave might not be so bad for Haiti.

Businesses do not give away their assets. The Haitian government ought to deal with aid and foreign direct investment (FDI) in a businesslike way: hard-headed and smart bargaining to make sure that all aid and investment advance the interests of the majority. Case in point: a government official reportedly cut back-room deals with foreign mining corporations to open up gold extraction at bargain-basement royalty rates, then shortly after went to work for one of those companies. This may be legal, as the official claimed. But it is not businesslike, much less transparent or honest. And if it is in fact legal then the laws that permit it cry out to be rewritten.

Businesses evaluate investment opportunities before jumping in. Along with the foreign firms and agencies offering FDI or aid to Haiti, the Haitian government, people and businesses are also making capital investments. They need to look at total costs versus total benefits of ownership, and return on investment, over a long time horizon. They need to account for negative and positive externalities, such as environmental damage on the minus side and training that develops human capital on the plus side. The evaluation ought to extend down to the most local levels, to what the least influential stakeholders on the ground stand to lose and gain.

Businesses do serious competitive analysis and plan strategically. Latin America is full of other governments, businesses, labor unions, and civil-society organizations who can offer hard-won wisdom on all of the economic sectors that are opening up in Haiti. Haiti can profit from their neighbors’ experiences with FDI, which may offer perspectives different from those of the industries looking to invest and from industrialized countries promoting their own business interests.

Transnational businesses routinely arbitrage the investment frameworks of countries competing to attract them; if Haiti doesn’t want to enter a race to the bottom with other poor countries, it needs to learn how to arbitrage potential investors. The times are ripe for this: China, Taiwan, Korea and other Asian nations are competing for investment opportunities throughout Latin America. Firms from middle-income Latin American countries like Brazil and Mexico are also crossing borders to challenge North American and European transnationals.

Ultimately, though, a government is not a business: an authentic democracy needs to be responsive to the interests of all its people, not just its major shareholders, and particularly to those like the majority of Haitians who are barely surviving in existing markets. The Haitian government ought to be using the bulk of the aid coming in, along with the preferential access to the US market offered by the HOPE and HELP trade programs, to leverage benefits for its citizens. Foreign companies will benefit from these if they invest in Haiti, so the government should rightfully capture a big piece of those gains and pass them through to ordinary citizens.